2002, subsidies in respect of LPG and kerosene distributed through the Public Distribution System are now explicitly reflected in the budget. This partially explains the spurt of 35.3 per cent in the expenditure on major subsidies in 2002–03. The spurt in major subsidies in 2002-03 was also because of an increase in food subsidy by Rs. 66.77 billion necessitated by the widespread drought in the country. Some of the major initiatives taken so far to rationalise the budgetary subsidies include targeted approach to food subsidy (BPL families) under Public Distribution System, allowing Food Corporation of India (FCI) to access market loans carrying lower interest rates, encouraging private trade in food grains, liquidating excess food grain stocks, replacing unit based retention price scheme with a group based scheme in the case of fertiliser subsidies and proposed phasing out of subsidies on PDS kerosene and LPG. (Economic Survey for the year 2004-05 Subsidies of state governments Subsidies given by 15 non-special category States were estimated for 1993–94, the latest year for which reasonably detailed data were available for all these States. The trends thrown up by the study are: Subsidies in social services and economic services both constitute half each of the total subsidies given by the States. The proportion of merit subsidies is much higher in social services vis-à-vis economic services. The overall recovery rate is 5.81% of the total cost (less than 2% in social services and approx. 9% in economic services). There is a distinct tendency for the per capita subsidies to rise as the per capita incomes rise. None of the 15 States spends more than 30-35% of total subsidies on merit goods. The recovery rates for merit services show variation in a narrow band whereas the largest variations are recorded for recovery rates for non-merit economic services. The near zero surpluses for all services show that subsidies are mainly financed by tax-revenues and borrowing in the States. More than one-fifth of non-merit social subsidies accrue to education, sports and art & culture. In economic services, irrigation accounts for nearly a quarter of services whereas power accounts for around 12%. Lastly, subsidies to States' public enterprises are large but recovery in the form of interests and dividends is extremely low. Centre and states: aggregate budget-based subsidies Total non-merit subsidy for the Central and State governments taken together amount to Rs. 1021452.4 million in 1994–95, which is 10.71% of